Exercise 19-17

Crane Co. establishes a $110,000,000 liability at the end of 2017 for the estimated site-cleanup costs at two of its manufacturing facilities. All related closing costs will be paid and deducted on the tax return in 2018. Also, at the end of 2017, the company has $55,000,000 of temporary differences due to excess depreciation for tax purposes, $7,700,000 of which will reverse in 2018. The enacted tax rate for all years is 40%, and the company pays taxes of $70,400,000 on $176,000,000 of taxable income in 2017. Crane expects to have taxable income in 2018.

Determine the deferred taxes to be reported at the end of 2017.

Deferred tax assets $ Deferred tax liabilities $

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Indicate how the deferred taxes computed above are to be reported on the balance sheet.

Crane Co. Balance Sheet December 31, 2017 For the Year Ended December 31, 2017 For the Quarter Ended December 31, 2017 Current Assets Current Liabilities Intangible Assets Long-term Investments Non-current Asset Non-current Liabilities Property, Plant and Equipment Stockholders' Equity Total Assets Total Current Assets Total Current Liabilities Total Intangible Assets Total Liabilities Total Liabilities and Stockholders' Equity Total Long-term Investments Total Long-term Liabilities Total Property, Plant and Equipment Total Stockholders' Equity $

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Assuming that the only deferred tax account at the beginning of 2017 was a deferred tax liability of $11,000,000, draft the income tax expense portion of the income statement for 2017, beginning with the line Income before income taxes. (Hint: You must first compute (1) the amount of temporary difference underlying the beginning $11,000,000 deferred tax liability, then (2) the amount of temporary differences originating or reversing during the year, and then (3) the amount of pretax financial income.)

Crane Co. Income Statement (Partial) December 31, 2017 For the Year Ended December 31, 2017 For the Quarter Ended December 31, 2017 Current Deferred Dividends Expenses Income before Income Taxes Income Tax Expense Net Income / (Loss) Retained Earnings, January 1 Retained Earnings, December 31 Revenues Total Expenses Total Revenues $ Current Deferred Dividends Expenses Income before Income Taxes Income Tax Expense Net Income / (Loss) Retained Earnings, January 1 Retained Earnings, December 31 Revenues Total Expenses Total Revenues Current Deferred Dividends Expenses Income before Income Taxes Income Tax Expense Net Income / (Loss) Retained Earnings, January 1 Retained Earnings, December 31 Revenues Total Expenses Total Revenues $ Current Deferred Dividends Expenses Income before Income Taxes Income Tax Expense Net Income / (Loss) Retained Earnings, January 1 Retained Earnings, December 31 Revenues Total Expenses Total Revenues Current Deferred Dividends Expenses Income before Income Taxes Income Tax Expense Net Income / (Loss) Retained Earnings, January 1 Retained Earnings, December 31 Revenues Total Expenses Total Revenues $